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Errors/Omissions Insurance questions

Errors/Omissions Insurance questions

Errors/Omissions Insurance questions

(OP)
I'm in the final stages of sparking up an independent consulting gig, (civil) for which I will occasionally have to stamp design documents.

I don't know much about E&O insurance, except that A) I need it, and B) the rates for it usually vary based on how much revenue you bill annually.


Questions:

1)  are E&O insurance rates based on stamped revenue, or total revenue?  I plan to do a lot of work that doesn't need a stamp on it.

2)  who are some good E&O insurance providers to contact, when shopping around?


Thanks in advance.

RE: Errors/Omissions Insurance questions

1) E/O insurance is based on the total revenue, type of work you do and a lot of other information that you need to fill out on an application. It does not matter whether or not you stamp the drawings. You have the liability.

More importantly even for the same revenue every year, the premium will keep going up every year as the risk of all the work you do keeps get adding up.  You have to have the continuous coverage of all the work you do for years to come (as long as the policy need to remain valid). If you have a break in coverage, you loose coverage of everything and a new policy will only cover the work beginning its effective date.

Remember your exposure to a claim still remains even if you retire. You may want to seek some professional advice from an attorney experienced in this field.

2) Find a professional insurance agent in your area through www.plan.org and talk to them.  

Rafiq Bulsara
http://www.srengineersct.com

RE: Errors/Omissions Insurance questions

One point above needs to be emphasised--if you change underwriters you have no protection for work done prior to the new policy effective date (the old guys wash their hands of you the second your policy lapses and the new guys won't touch it).  You can get "bridge coverage" that keeps you covered for the earlier insured period, but it is really expensive and rarely written.  When I first started I would get my next-year premium notice and start price shopping.  Lucky for me there are few agents that handle this stuff and I never found a better price and have been with the same company from day one.  That was just dumb luck.

Few Engineers handle rejection very well because mostly we don't get rejected for stuff.  In this area you need to prepare yourself for rejection.  I had 25 underwriters reject my business before I found one that would cover me.  It may not be so bad in Civil as it was in Oil & Gas Facilities, but it probably won't be a cake walk either.  The insurance through ASME and SPE both rejected my application because they didn't feel that they had adequate experience in my field (that's right, a policy through the Society of Petroleum Engineers doesn't feel they know enough about Oil & Gas).  

Good luck with your new business.

David

RE: Errors/Omissions Insurance questions

I was generally able to find e&o insurance through the same agent that provided my general liability and workman's comp insurance.  I had policies through CNA and DPIC that were reasonable (for a geotech) that cost in the range of 3% of total revenues.  For protection of earlier work, I was also able to purchase Prior Acts coverage, which added about 10% to the overall cost.  One way to get the rates down is to increase your deductible.  I typically ran a $5k deductible, although I know of a number of engineers that run $20k deductibles.  If you are seriously worried about litigation, DPIC offered what they called DollarOne coverage, which covered all legal fees from the first day and the deductible only applied to any settlement.  Once again, this was an additional charge.  I often found that getting quotes from several different business agencies got me policies that were similar or less expensive than I could get from one of the professional societies.  

RE: Errors/Omissions Insurance questions

That's amazing.  I've always heard that Geotech was the OB/GYN of Engineering and I'm paying 2% more than you (with a $5k deductible).  I'm going to go have a beer.

That Prior Acts coverage is what my underwriter calls a "Bridge Policy", but my guy wanted about half the basic policy amount the first year (with the promise that it would go down each year till the Statute of Limitations was reached).

David

RE: Errors/Omissions Insurance questions

beej67...also, not only is your cost related to total revenue, it is gross revenue. That means if you subcontract work out to another engineer or drafting service, and then bill for their services through your company, you pay for that as well.

Good luck with the business.

Ron

RE: Errors/Omissions Insurance questions

(OP)
Okay, so here's the rub.

A very large amount of the stuff I'm going to end up doing, if this goes the way I think it will go, is zero liability stuff.  Stuff for which I basically cannot be sued.  Education, expert testimony, blah blah.  Stuff I wouldn't even bother carrying an E/O policy for.  

But on the off chance I run into something where I would need to be covered, I'd like to not assume liability myself.  It makes no sense to pay E&O on work that's 90% un-sue-able.  I'd pay more in insurance than the work I'm doing to pay for the insurance, and be better off doing less work.

Can I set up two companies, and due insured work with one, and uninsured work with the other?

RE: Errors/Omissions Insurance questions

Bee67,

Yes, you can.

Or you can start a new company each year and dissolve it at the end of the year. It's a trick done by some engineers who work in industries that are virtually uninsurable. DERs are one example. They approve data on behalf of the FAA for modifications to commerical airplanes. Insurance is unaffordable for the kind of work they do.

Cedar Bluff Engineering
http://cedarbluffengineering.webs.com

RE: Errors/Omissions Insurance questions

You can do whatever you want just be prepared to face the consequences.
 

Rafiq Bulsara
http://www.srengineersct.com

RE: Errors/Omissions Insurance questions

(OP)
"face the consequences" = ?

RE: Errors/Omissions Insurance questions

That is true for everyone, in whatever they do. No one does anything to invite problems, but the truth is we all have them.

Rafiq Bulsara
http://www.srengineersct.com

RE: Errors/Omissions Insurance questions

(OP)
Okay..

So outside of general life advice, do you have any anecdotes or experience with what I'm talking about to share, Rafiq?

Photoengineer:  Seems to me that if you shut a company down and started another to save yourself insurance costs, you'd still be on the hook for bridge coverage, as discussed above.

RE: Errors/Omissions Insurance questions

You had the advice from many, but it appears you want to what you want to do. Why ask?

And once you ask in a public forum, you have opened yourself to all kinds of responses, whether or not you like them or agree to.  

If you want real and legal advice, which you ought to do, ask an attorney or two. Members here are a bunch of engineers and most of us consulting engineers carry E/O insurance as far as I can tell.

As far as suing goes, you do not have be wrong to get sued and proving innocece can also be very costly. Lawyers always goes to the bank laughing, whether you win or lose.

Also it does not matter what you think is sueable, as it is not up to you to decide who can sue you. Everyone who gets sued, always believed they could not be sued.




 

Rafiq Bulsara
http://www.srengineersct.com

RE: Errors/Omissions Insurance questions

(OP)
I'm not here to argue, Mr. Bulsara, I'm here to ask legitimate, valid questions about how to structure a business so that I maintain insurance over activities that need to be insured without assuming costs that are ridiculous.  I'm not asking the question to 4Chan, I'm asking it to what's supposed to be a body of respected professionals.  If you don't want to participate in such a conversation, I'm sure there are other things you can do with your time.  

No, I seriously doubt I'll be sued for spending a day teaching fluid mechanics for Continuing Ed credits, and even if I did, there's no way I'd pay for E/O for teaching.  

No, I seriously doubt I'd be sued for providing legal testimony for another lawyer during a lawsuit, and even if I did, there's no way I'd pay for E/O to cover my expert testimony.

No, I have absolutely not "already decided" anything.  I am in the middle of deciding whether to either:

A)  get a 2nd mortgage on my house to cover the expenses of starting my own business, or
B)  reduce my scope of services with the new business, or
C)  start two new businesses to sufficiently differentiate between the scope of services provided, or
D)  make arrangements with friends so that I outsource some services to them

I'm sorry if my predicament bothers you, sir, but it's a reasonably important decision in my life, and there's no reason for you to be so hostile.  If you're going to continue on like this, I'd appreciate it if you'd take a few seconds to click the "turn off email notification" button in the bottom left corner, and save us both some time.

Thanks in advance.

RE: Errors/Omissions Insurance questions

Go beej67!

RE: Errors/Omissions Insurance questions

beej67...It is awfully difficult to separate activities between engineering works and non-engineering works as a consulting engineer.  In general, if you carry a certificate of authorization to practice engineering in a particular state, it is assumed that what you do on every project has to do with engineering.  That's obviously arguable; however, that argument often gets played out AFTER the lawsuit is filed, not before.  That means a claim is filed against your insurance and you will be defending something from which perhaps you can extricate yourself, but not without expense and lost time.

My suggestion is to get the insurance, deal with the fact that the premiums are based on gross fees, institute a quality assurance program (even if you practice alone), document all that you do, understand and CRITICALLY review your contracts (look for poor indemnification clauses, limitation of your liability, standard of care, ownership of documents, etc.), and assume that everything you produce will, at some point, be critically reviewed by an attorney and his engineering expert.

Good luck.

Ron

RE: Errors/Omissions Insurance questions

(OP)
I get that, and would never attempt to divide a project that requires engineering into two pieces.  That's a nightmare.  

But if I get hired to teach, or do a peer review, or provide legal testimony, or manage LEED paperwork, then those are activities that aren't going to spill over into design work, so paying E/O insurance for doing those activities is dumb.  And if those activities are the majority of my work, it may be more cost effective to simply narrow my scope of services and not bother with insurance at all.  That's the break point I've got to get my head around moving forward.

 

RE: Errors/Omissions Insurance questions

I can see someone taking a class taught by you, screwing up, and then pointing the finger back to your teachings.  It may not be right, but it'll happen, and you could spend lots of hard-earned cash removing yourself from the fight.

Just trying to show that no type of job is invulnerable...

Dan - Owner
http://www.Hi-TecDesigns.com

RE: Errors/Omissions Insurance questions

(OP)
Walking down the street isn't invulnerable to litigation in today's society.  Does that mean we all need to carry sidewalk insurance?  You have to draw the line somewhere, and that's what I'm trying to figure out.  I'm reasonably sure none of my college professors carried E/O to teach.  I'm reasonably sure none of the vendors doing freebie lunch and learns on their product carry E/O to teach.  Have you guys ever heard of that?  I've never heard of an expert witness getting sued for providing expert testimony for another lawsuit.  Have you?

If the answer is "yes" then that's important info to get on the table!

:)



 

RE: Errors/Omissions Insurance questions

beej67..

No, professors don't carry E&O insurance unless they do consulting on the side.  There is an implicit indemnification of professors for what they teach, without regard to how bad it might be.

I taught for 5 years at the university level and while I had insurance, it was not a consideration in teaching.

I have seen experts get zapped.  You can't hold yourself out as an expert and then do stupid things,thinking you're immune to liability.  Just recently, a retired engineer provided an opinion in court on an engineering issue.  He was wrong and did not reactivate his license to offer the opinion in public court....a violation of state law in the area in which he offered the opinion.  The client is pursuing.

As for expert witness work, it isn't usually the opinion that gets you in trouble, but if you are negligent in obtaining the information upon which those opinions are based, you can be embarassed at the least and sued at worst.  I do structural and construction forensics, so I know this arena reasonably well.

All in all, though, expert witness work is relatively low liability work.  You're more likely to damage your reputation than your bank account.

Ron
 

RE: Errors/Omissions Insurance questions

(OP)
Thanks Ron, that's good info.

RE: Errors/Omissions Insurance questions

I don't carry insurance. Never have. The type of work I do involves jobs less than $5k for the private sector. My contracts are legally solid and if I make a mistake, which fortunately hasn't happened yet, I pay out of pocket for it.
We have been sued a couple times, but we've never paid  a dime because the lawyers don't see the money in it if there is no insurance.
If you are doing small work, have a good contract, do good work, and tell clients you are self-insured.  

www.idecharlotte.com

RE: Errors/Omissions Insurance questions

(OP)
I spoke to a lawyer I highly respect who told me something similar, idecharlotte, that basically if you're uninsured then you're not worth suing for many of these guys.  

Then again, the stakes are really high if they decide you *are* worth suing anyway.

Mostly I'd want insurance as a down payment / retainer for a lawyer, as much as anything else.  

I thank you all for the input so far, and will continue to monitor the thread.  Clearly next step is to talk to a lawyer in a little more detail, then talk to an insurance broker or two.

Do you guys have any more recommendations for insurance brokers?  Does this website support private messages?

RE: Errors/Omissions Insurance questions

idecharlotte - I once thought that way, until I was sued over a $2500 job.  I had performed the work in accordance with the clients wishes and the client dictated all of the parameters of the work.  My contract was solid and my lawyer told me the client had no case.  I just did not tell him what he wanted to hear.  It still cost me $60,000 in legal fees to prove myself right.  This client not only sued my company, he sued me personally to get at any assets that he could.  After that experience, I have never gone without E&O insurance.  The cost of E&O may seem high, but percentage-wise, I've found it no higher than the charges the credit card companies charge to process credit transactions.

RE: Errors/Omissions Insurance questions

I am a 1-person structural engineering firm.  I was recently sent an unsolicited email from the Dept. of Transportation (DOT) in my state, requesting that I bid on a small civil/structural job.  I attended the mandatory pre-bid conference for the job, and the DOT representative stated that large firms had recently been charging 2-4 times the rates for engineering services that they had budgeted and that the large firms needed to consider this in their bids.  However, the E&O coverage requirements made it cost-prohibitive for small firms like mine to pursue the work, even though the work scope was well suited to a small firm.  I'm sure the reason I was solicited for a bid is because I am a small firm; the only reason the large firms were there, is due to the economy.

This is ridiculous.  Is there some sort of a lobby pushing for affordable E&O Insurance for small firms?  Our state has an insurance division and if other state departments want smaller firms and lower billing rates, they should concurrently be seeking lower insurance premiums and more competition.  This is not an engineering problem; this is an insurance problem.  Any thoughts on a lobbying effort?

RE: Errors/Omissions Insurance questions

(OP)
My current (not startup - day job) company has seen the same sorts of things going on.

Here's the story in Land Development:

Economy crashes.

Many large engineering firms lay off 80% or more of their staff.

Included in that 80% are most of the people who actually know how to engineer, as opposed to the CEOs and client managers and (many) project managers who haven't actually engineered anything in a decade, who are largely retained.

This puts a glut of good engineering talent in the market, engineering talent that largely knows that they can do a job for a x2 or x1.5 multiplier out of their home and undercut the fat cats who fired them.  

This good engineering talent bands into small firms, lowballs some bids, and monopolizes the first round of work post-crash, further screwing the older established firms.

Some of those small firms do good work, do well, and are now growing.  Some of them screw things up, and then the clients begin to realize that they're uninsured, or poorly insured.  Maybe something fails, maybe rumor of it gets spread around, and now the clients get worried.

The next phase of the story is the one we're in now.  You have clients who want work done for the prices that the Kitchen Table firms can do, but they want established firms with 2 million or more in insurance coverage to do it.  And they can often get it, because those established firms are so strapped for work they'd rather work at a loss than close shop.  They're still buying work.  Bidding out of fear.

I wouldn't mind seeing an entirely new E&O model arise, where each job is individually insured, instead of insuring the firm itself.  That makes the most sense from a business standpoint.  I suspect the insurance companies are not set up this way though, and I doubt they'd want to change, considering how much money they make now.

RE: Errors/Omissions Insurance questions

brent578 -

Can you get a project specific rider for a larger project?  That way, you can still keep your lower limit, but you could bill the higher coverage as an expense to the DOT, or build that premium into your fee. I have heard there are some carriers around that do this, but they are hard to come by.

Is that an option?  You could maybe get a quote from a carrier to show the DOT you are serious, and tell them you will get the coverage once you are awarded the project.   

RE: Errors/Omissions Insurance questions

Reinforcing what a few others have stated here, I've heard the saying that E&O insurance is a "lightening rod for lawsuits" and that if you don't have it, and if the company does not have significant assets, which my company does not, the attorney's will not bother going after you.  They have nothing to gain.   However, if you do have it, they will go after you whether you are at fault or not since the insurance policy is the deep pocket that they are looking for when deciding who to go after.   I've never had it and most of the people I know in the same line of work do not and say they will not.  

I realize in some cases companies are forced to have it.

 

Richard
www.led-inc.com

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